Kenya’s savings and credit cooperatives (SACCOs) — a backbone of financial inclusion and credit access for millions — are grappling with a deepening crisis as unremitted deductions by employers reached KSh 3.49 billion in 2024, up from KSh 2.59 billion in 2023. The figures, contained in the 2024 SACCO Supervision Annual Report by the Sacco Societies Regulatory Authority (SASRA), underscore systemic vulnerabilities in the cooperative sector, which has otherwise been on a strong growth trajectory.
The unremitted funds — deductions taken directly from employee salaries but not forwarded to their SACCOs — are destabilizing liquidity, fueling disputes, and placing thousands of members into technical default despite their contributions being deducted.
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The Magnitude of the Problem
Employers holding back billions
According to SASRA’s report, at least 85 regulated SACCOs and more than 55,600 members were affected. Of the total withheld deductions, 74.5% was meant for loan repayments, leaving members unfairly classified as defaulters.
County governments and assemblies were the biggest culprits, holding back KSh 1.61 billion, equivalent to 46% of the total. Public universities and tertiary colleges followed with KSh 762 million (22%), while state corporations and private firms owed KSh 165 million and KSh 434 million respectively.
In the words of SASRA, “It is an oxymoron that employees of defaulting county governments and assemblies are paid, but the deducted funds never reach SACCOs. The plausible explanation is diversion for other purposes.”
A Business Daily analysis previously highlighted this trend, warning that SACCO members are bearing the brunt of financial indiscipline in public institutions.
A sector still growing
Paradoxically, SACCOs as a whole are expanding. By December 2024, the sector’s assets had crossed the KSh 1 trillion mark, rising from KSh 392.8 billion in 2016 to KSh 1.08 trillion. Deposits grew to KSh 749 billion, while membership climbed to 7.39 million. Gross income surged to KSh 159.6 billion, nearly double the KSh 80.2 billion recorded in 2019.
Despite these milestones, SASRA warns that the growing pool of unremitted deductions threatens this momentum by draining liquidity and undermining trust.
Why Employers Are Withholding Funds
Liquidity constraints in counties and universities
Many county governments and universities, which rely on central government transfers, have faced budget shortfalls. When faced with competing priorities, salary remittances are made but SACCO deductions are often diverted. A Nation report documented how employees are shocked to discover loan arrears despite monthly deductions being reflected on payslips.
Weak enforcement mechanisms
Under current frameworks, SACCOs have little power to compel remittances. Legal action is slow and costly, especially against government entities. SASRA has therefore renewed calls for legal reforms that would allow deductions to be recovered directly from exchequer disbursements to counties and state institutions.
Mismanagement and diversion
Evidence suggests that some institutions deliberately redirect remitted deductions to other expenditure, creating financial indiscipline and undermining employee savings.
Private sector distress
In the private sector, companies undergoing restructuring or insolvency sometimes suspend SACCO deductions. According to a Standard Group report, defaults and membership exits in struggling firms have worsened the trend.
Fallout for SACCOs and Members
Eroded liquidity and lending
SACCOs depend heavily on regular cash flows to finance loan portfolios. When deductions fail to arrive, liquidity shrinks, impairing their ability to issue new credit or refinance existing loans.
Members in technical default
Because 74.5% of the unremitted funds were meant for loan repayments, thousands of members appear as defaulters on SACCO books, even though they did not miss payments. This misrepresentation fuels disputes and exposes members to credit penalties.
Rising disputes and mistrust
Cases of disputes between members and SACCOs have risen. Members question why SACCOs penalize them for failures by employers, while SACCOs insist they cannot absorb systemic cash shortfalls without jeopardizing financial stability.
Non-performing loans
Interestingly, SASRA reported a slight improvement in the sector’s non-performing loan (NPL) ratio, which eased from 8.45% in 2023 to 8.39% in 2024. But analysts warn that the NPL ratio may not reflect the underlying risks if unremittances continue.
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The Digital Transformation of SACCOs
Embracing mobile and digital channels
SACCOs have rapidly modernized delivery channels. By 2024, 245 SACCOs (69%) had deployed USSD codes, while 171 (48.2%) offered internet-based apps. ATM connectivity remains strong, with about 65% of deposit-taking SACCOs linked through Cooperative Bank, ABC Bank, Family Bank, and Interswitch.
Cheque services are still used for large transactions, dominated by Co-op Bank, which serves 86 SACCO clients. In addition, many SACCOs have partnered with PesaLink via major banks including Equity, KCB, Stanbic, and DTB.
Expanding agency banking
Agency banking has expanded, with 40 SACCOs operating 4,247 agents who processed KSh 31.65 billion in transactions in 2024.
Digital credit boom
Digital lending is the fastest-growing segment. SACCOs rolled out 345 digital and microloan products in 2024, up from 251 the previous year. Most products cap at KSh 50,000 with short repayment periods, though loans of up to KSh 500,000 are also available. Interest rates average between 5.8% and 10% per month.
However, SASRA cautions that rapid digitization introduces cybersecurity risks and intensifies competition with banks and fintech lenders. A Kenyan Wall Street feature noted that SACCOs are racing to balance innovation with risk controls.
Regulatory and Policy Responses
SASRA’s proposals
In its 2024 report, SASRA called for:
- Direct deduction powers from exchequer disbursements to ensure SACCOs are paid before counties or universities divert funds.
- Stronger audit and compliance frameworks within defaulting institutions.
- Public disclosure of defaulting institutions to enhance accountability.
- Enhanced regulatory coordination to cover defaults in both public and private sectors.
Push for legislative reforms
SASRA is lobbying Parliament for legal reforms that would make non-remittance an enforceable offense and empower regulators to intercept funds directly. This mirrors frameworks in other countries where cooperative deductions are ring-fenced at source.
A Parliamentary Committee review has already acknowledged the urgency of reforms, signaling momentum toward legislative change.
Regional and Global Context
Kenya’s SACCO sector is one of the strongest globally, but challenges with remittances mirror problems seen elsewhere:
- In Uganda, cooperative law reforms created automatic payroll transfers to cooperatives to prevent diversion.
- In Tanzania, SACCOs have faced arrears challenges when employers prioritize cash flow elsewhere.
- In India, provident fund and cooperative contributions are legally protected with stiff penalties for diversion.
Kenya’s path forward may adopt similar enforcement powers to protect member funds at source.
Implications for Stakeholders
- For members: Unremitted deductions leave workers unfairly penalized. Stronger protection mechanisms are urgently needed.
- For SACCOs: Liquidity strains could weaken credit growth and profitability, forcing some to scale down lending.
- For government entities: Counties and universities risk reputational and legal consequences unless reforms enforce compliance.
- For regulators: SASRA faces pressure to both protect members and preserve SACCO stability.
- For private firms: Defaults highlight the fragility of firms undergoing restructuring, with employee savings often caught in the middle.
What to Watch
- Legislative reforms on direct deduction enforcement.
- Auction performance of SACCO-issued credit products amid liquidity stress.
- SASRA enforcement actions and possible penalties on non-remitting institutions.
- Member confidence levels, measured in deposit growth and loan uptake.
- Sector digitization and cybersecurity risks, which could compound financial vulnerabilities.
Conclusion
The KSh 3.5 billion in unremitted SACCO deductions underscores both the strengths and fragilities of Kenya’s cooperative finance model. On one hand, SACCOs are expanding in assets, membership, and digital innovation. On the other, persistent employer defaults threaten liquidity, member trust, and long-term sustainability.
Unless reforms empower regulators to enforce remittances directly, SACCOs may remain vulnerable to the financial indiscipline of counties, universities, and struggling private firms. The stakes are high: millions of Kenyans depend on SACCOs not just for credit, but also for savings, housing finance, and investment security.
As Kenya’s SACCO sector enters its trillion-shilling era, the next phase must be one of protection, enforcement, and accountability — ensuring that growth is not undermined by systemic lapses in remittance discipline.
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By: Montel Kamau
Serrari Financial Analyst
2nd October, 2025
